Spain reiterates opposition to VAT hike

Spain's secretary of state for economic and business support, Fernando Jiménez Latorre, said during a press conference on July 11, 2014, that "it is not the time to increase indirect taxation," despite advice to boost value-added tax revenues from the International Monetary Fund.

The IMF's Article IV consultation report for Spain, issued on July 10, 2014, urged the Spanish government to raise excise duties and environmental levies, and gradually reduce preferential value-added tax rates to bring its tax gap into line with other European states. The IMF said that these measures are critical to boost the economy and create jobs. However, Latorre denied that an increase in the headline VAT rate is necessary as the effects of an earlier increase are still settling in.

In 2012 the government hiked the headline rate from 18% to 21%, and the reduced rate was increased from 8% to 10%.

He said the Government has already taken adequate steps to boost job creation. In particular, he noted the personal income tax rate changes introduced in the nation's tax reform bill, which is to cut the income tax rate on individual income up to EUR12,450 to 20% from 2015, and to 19%from 2016. This compares with the current rate of 24.75%, which applies to income up to EUR17,707. In addition, the number of tax brackets will fall from seven to five, with the bottom and top rates of 24.75% and 52% falling to 20% and 47% in 2015, and to 19% and 45% in 2016.

The top rate of income tax will cut in at the substantially lower income level of EUR60,000, compared with EUR300,000 currently, however. The Spanish government has previously rejected calls from both the IMF and the European Commission to increase its headline VAT rate.